Wednesday, October 3, 2007

Dot Hill Withers in Q3

I have been watching SAN (Storage Area Network) equipment maker Dot Hill (HILL) closely lately, hoping Q3 would be the day this company showed traction. The stock is cheap, the company has quite a bit of cash compared to its market capitalization value, but this only will work out for investors if revenues and earnings start a steady increase. (I don't hold Dot Hill, but have in the past).

Hopes were dashed today by a preliminary Q3 earnings report. Instead of getting traction, revenues were down quite a bit. The estimate is $43 to $46 million, a plunge of at least $10 million from Q2, and at least $4 million below the low end of the guidance given by management in August.

The only bright bit of data is that cash may have increased slightly. The company has been taking steps to cut costs.

Dot Hill has been trying to get away from being a parts source for a single customer, Sun. It has made good progress on that score in the past year. It is not clear whether the Q3 shortfall is due to lack of orders from Sun, or a gap in orders from one of the new customers. In any case sales to new customers cannot be ramping very quickly when we see this kind of result. Dot Hill has some impressive new technology, but competition in the data storage industry is fierce.

For more information see my Dot Hill page, which has links to my notes on prior Dot Hill analyst conferences.